OPUS INCOME & CAPITAL FUND NO. 21 ASIC Regulatory Guide 46: Improving Disclosure Updated March 2015 Introduction This document has been prepared by Opus Capital Limited (AFSL 246714), as the responsible entity (RE) for the Opus Income & Capital Fund No. 21 (Fund) for the purposes of addressing the disclosures required under the ASIC Regulatory Guide 46. All disclosures are as at 31 December 2014 unless stated otherwise. This information will be updated on a six-monthly basis or when material changes occur, and will be posted on the Opus website at www.opusaustralia.com. Unitholders may request a printed copy of this document by contacting the Manager, Investor Relations on 1300 889 100 or by email clientservices@opusaustralia.com. Benchmarks & Status The following benchmarks forms part of the Opus Financial Risk Management Policy. Disclosure Principle 1: Gearing Ratio The RE maintains and complies with a written policy that governs the level of gearing Policy at an individual credit facility level. Gearing ratio: 74% The Fund gearing ratio is 74%, based upon the latest audited half year financial statements dated 31 December 2014. The gearing ratio is calculated by dividing the total interest bearing liabilities by total assets, and indicates the extent to loans. This provides the investor with an indication of the potential risks of the scheme in terms of its level of borrowings, in the event that interest rates increase or property values decrease. The above formula differs from the gearing and loan-to-value formula prescribed by debt facility covenant calculations. EBITDA (Earnings before Interest, Tax Depreciation and Amortisation) by the interest payable on the loan facilities. The ICR provides investors with an indication of the ability of the Fund to meet interest payments from the net earnings of the properties. The ICR is a critical indicator of the financial health of a fund and key to analysing the sustainability and risk associated with the level of borrowing. An ICR above 1.0 times means that the Fund is able to cover the interest payments. Conversely, an ICR below 1.0 times means that the Fund is unable to meet all of the repayments. The above interest cover calculation differs from the interest purposes of the debt facility covenant calculations. The ICR for the Fund indicates that it is currently able to meet its interest payments. Disclosure Principle 3: Scheme Borrowing Met Benchmark 1. Gearing Policy Yes 2. Interest Cover Policy Yes 3. Interest Capitalisation No 4. Valuation Policy Yes 5. Related Party Transactions Yes 6. Distribution Practices Yes Disclosure Principle 2: Interest Cover The RE maintains and complies with a written policy that governs the level of interest cover Management at an individual credit facility level. Interest Cover Ratio: 1.29 times interest cover ratio for the six months to 31 December 2014 was 1.29 times. This calculation is based upon half year financial statements dated 31 December 2014. The ICR is calculated by dividing borrowing arrangements as at 28 February 2015. Lender GE - Advance GE - Capex OCL - Associates Magnum Amount $123M $5M $2.1M $1.747M Drawn $97.998M $3.75M $2.904M $2.122M Expiry Jun 17 Jun 17 Jun 17 Dec 17 Interest Fixed & Variable Variable Fixed Fixed Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 1
The table below provides an analysis of the loan-to-value ratio (LVR) and interest cover covenants (debt service coverage) under the debt facility as at 1 January 2015: LVR LVR DSC DSC Actual Covenant Actual Covenant GE 73% 73% 1.64x 1.35x These aforementioned financial covenants are calculated quarterly and differ from the gearing and interest cover calculations prescribed in Disclosure Principle 1 and 2. Debt Expiry Estate (GE) has a remaining term of 2.25 years. The Facility also includes $5 million of funding for capital improvements of which $1.25 million remains available. The Fund has two junior debt facilities which are fully subordinated to the senior lender, GE. The first of these facilities was provided by associates of Opus Capital Limited and was required to achieve the refinance with GE is June 2013. The second loan was advanced some years ago by Opus Magnum Fund. The interest of each of these subordinated loans capitalise as required by the deed of subordination with GE. Credit facility expiry profiles are important information to consider where a property fund borrows to invest. Credit facilities that are due to expire within a relatively short timeframe can be a significant risk factor, especially in periods where credit is more difficult and expensive to obtain, as new facilities may be on less favourable terms. If a fund is unable to refinance, they may be forced to sell assets and risk facing a considerable loss. Breach of Loan Covenants The Fund is currently not in breach of its lending facilities with GE. When credit is made available to a fund, it is provided with certain provisions and qualifications to ensure that the lender is protected and that the cost of the funds is appropriately priced. Provisions typically include a minimum level of gearing and interest cover. If the provisio occurs. The event of a breach of a loan covenant may result in the lender being able to require immediate repayment of the loan, to freeze any further debt draw-downs or to dictate the application of net income to debt reduction as opposed to investor returns. If the lender exercises such rights, the fund may be forced to arrange alternative financing or to execute asset sales within a short timeframe. Ranking of Investors Investors into property funds should be aware that they rank behind the lenders to the Fund including subordinated loans. Interest Capitalisation The interest expense for the Funds senior facility with GE is not capitalised. The interest expense is capitalised for the Funds two junior debt facilities (OCL Associates & Opus Magnum) where monthly accrued interest and principal are due for full repayment in June 2017 and December 2017 respectively. Disclosure Principle 4: Portfolio Diversification Investment Strategy capital improvements program continued to be executed through the half year with a further $1.5 million being allocated toward tenant incentives, replacement of aged plant and equipment and make good of aged tenancies. As a result of this program, the Fund occupancy is presently 95% and the Weighted Average Lease Expiry (WALE by income) is 3.60 years (as at 1 February 2015). In December 2014, the property located at 700 Springvale Road, Mulgrave was sold which eliminated significant leasing risk from the single tenanted property and the net sale proceeds were directed toward reducing the senior dent facility. The RE believes the portfolio assets are now in attractive position that it can look to recapitalise the Fund, reducing LVR, increasing distributions and providing a major liquidity event. A targeted recapitalisation of $60 million in the last quarter of the 2015 financial year will enable such a restructure. Geographic Spread income is as follows as at 1 February 2015. Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 2
Major Tenants Occupancy (by Income) across the portfolio is 95% as at 1 February 2015. Top 5 Tenants Melbourne 33% Gold Coast 7% (as at 1 February 2015) Income ($ ) % of Total CASA $2,752 16% Golder Associates $2,487 15% DTMR $1,650 10% Fulton Hogan $943 6% Spotless $914 5% Property Valuations The RE maintains and complies with a written valuation policy. website at www.opusaustralia.com. The valuations for the properties in the Fund as at 30 June 2014 are as follows: Cairns 30% Brisbane 30% Property Cap Rate Value Type 9 19 Lake St 9.00% 30,150 Independent Bldg 2, 747 Lytton Rd 9.13% 13,000 Independent 142 Benjamin Pl 9.00% 7,500 Independent 12-14 The Circuit 9.00% 18,500 Independent 154 Varsity Pde 9.25% 12,200 Independent 700 Springvale Rd 9.50% 15,000 Independent 436 Elgar Rd 9.00% 15,500 Independent 572 Swan St 8.25% 31,700 Independent Independent Valuations are carried out on all assets at a minimum of either every twelve months, or in the event that an asset is believed to have changed materially in value from the preceding valuation. An Independent Valuer may not value a property more than three times in a row. Internal or Directors Valuations are carried out on all properties for the half-year end accounts as at 31 December each year. Lease Expiry Profile The Weighted Average Lease Expiry (by Income) across the entire portfolio is 3.60 years as at 1 February 2015. Sector Diversification The industry sector (by Income) is 95% commercial office, 5% industrial. 5% Development and/or Construction Assets Not applicable. Disclosure Principle 5: Related Party Transactions Details of all related party transactions are reported at half year and year end 1% 8% 10% Vacant FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 + statements. The latest audited half year financial statements dated 31 December 2014 contain a full review of the related party transactions (see Note 5). These accounts can be found www.opusaustralia.com. Responsible entities who enter into transactions with related 27% 16% 33% parties should disclose their interest in these transactions. Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 3
A related party transaction is where acquisitions, divestments or loans are conducted with parties related to the responsible entity or the managers. Related party transactions carry a risk that they could be assessed and monitored less rigorously therefore be able to assess whether responsible entities apply an appropriate level of due diligence to related party transactions. Details Fees to Related Parties The table below lists the related party transactions that occurred for the financial half-year ending 31 December 2015. Related Party Amount Responsible Entity $658k representing management fees, capital works fees and the reimbursement of administration costs. Integra Asset $823 k representing property Management * management fees, leasing fees and the reimbursement of administration costs. Integra Facilities $83k representing facilities Management * management fee and the reimbursement of administration costs. Madsen Finance Pty $278k representing financial Ltd * intermediary fees. * Wholly-owned subsidiary of the responsible entity, Opus Capital Limited ** A related party to Mark Hallett, a Director of the RE. Other related-party transactions: Type Amount Distribution paid on units held by RE $71 Details of Loans with Related Parties Loan from Opus Magnum Fund Opening balance $1,988,881 Loan repayments received nil Interest accrued $133,951 Closing balance $2,122,832 Loan from OCL Associates:: Opening balance $2,639,384 Loan repayments received Nil Interest accrued $264,658 Closing balance $2,904,042 provisions of the Corporations Act 2001 (Cth). Compliance with this policy is independently audited on an annual basis. Risks associated with Related Parties Primary risk remains with the relationship, solvency and control of the associated service relationships. Disclosure Principle 6: Distribution Practices Source of Distributions Distributions paid for the half year ended 31 December 2015 were $326,000 which was funded from net cash flow and included units reinvested through the dividend reinvestment plan. The RE intends to continue making distributions from capital or income sources with a goal to increase the distribution to a level reflective of Fund income. This will however depend on the reduction in gearing levels (LVR) and the capital requirements of the Fund. Disclosure Principle 7: Withdrawal Arrangements The Fund is currently closed for withdrawals. It is the view of the RE that withdrawal arrangements will not be offered to unitholders until Fund borrowings are reduced to a sustainable level. Opus Capital Limited Services * Hallett Legal Pty Ltd ** $57k representing reimbursement of administration costs. $33k representing legal fees. Related Party Transaction policy The RE has a Conflicts of interest and related party transactions policy to manage conflicts of interest and related party transactions in accordance with ASIC policy and the relevant Disclosure Principle 8: Net Tangible Assets (NTA) value is $0.1579; based on the audited half year financial statements dated 31 December 2014. Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 4
The NTA value is calculated by dividing the net assets minus any intangible assets (plus or minus any other adjustments) by the total number of units on issue in the Fund. The NTA can be utilised by investors to understand the value of the assets upon which the value of their unit is determined. In particular, potential investors can compare the prevailing ermine if there is any premium being paid. The larger the premium, the larger the risks that a potential investor will not achieve a positive capital return. this report constitutes investment, financial product, legal, tax or other advice. Information contained within this Report is not a recommendation and should not be considered as a solicitation, offer or invitation to buy this financial product. An investment in the Fund has risk, can fluctuate in value, is not a bank deposit, is not guaranteed and investors risk achieving lower than expected returns or losing some or all of their principal investment. Past performance is not a reliable indicator of future performance. Distributions, if any, will generally be paid monthly. Further Information If you would like further information in relation to the above please refer to our website in the first instance at www.opusaustralia.com or contact the Opus Manager Investor Relations on 1300 889 100 or by email clientservices@opusaustralia.com. Updates on these Disclosure Principles will be made every six months or in the event of a material change and posted on our website. Disclaimer Opus Income & Capital Fund No 21 (ARSN 104 391 273) (Fund) is issued by Opus Capital Limited (ACN 095 039 366; AFSL 246714) (OCL). OCL has prepared this ASIC Regulatory Guide 46 Report with the information available to it. This information is general in nature and is provided without taking into consideration your objectives, financial situation or needs. Recipients should, before acting on such information, obtain independent financial advice as no information contained in Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 5